The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has officially issued the Arabic version of its Financial Accounting Standard (FAS) 44, titled “Determining Control of Assets and Business.” This marks a significant development for Arabic-speaking stakeholders in the Islamic finance industry, providing them access to the latest unified guidance on assessing control in financial reporting. The English version of the standard was released in December 2023.
AAOIFI’s Accounting Board (AAB) Translation Committee finalized and approved the Arabic text following a thorough review and vetting process. This release is part of AAOIFI’s broader commitment to inclusivity and accessibility in standard-setting for Islamic financial institutions worldwide. The Arabic version of FAS 44 is now in effect and ready for adoption by institutions that report in Arabic or require Arabic-language documentation for regulatory or operational purposes.
FAS 44 plays a pivotal role in consolidating and streamlining the definition of control, which was previously scattered across several AAOIFI Financial Accounting Standards and its Conceptual Framework for Financial Reporting. By unifying all relevant principles into a single standard, AAOIFI aims to eliminate inconsistencies, enhance comparability, and promote more transparent financial reporting across jurisdictions.
The core objective of FAS 44 is to establish clear criteria for determining when an Islamic financial institution controls an asset or a business. This determination directly influences how participatory instruments are recognized and presented—either on the balance sheet or off-balance sheet—and their appropriate classification in the financial statements.
The scope of the standard extends beyond asset recognition. It also sets principles for determining control for the purposes of consolidation. Specifically, it offers guidance on how financial institutions should assess control over subsidiaries and participatory structures. This is especially crucial for Islamic financial institutions, which frequently engage in partnerships, joint ventures, and various Shari’ah-compliant financial arrangements that can complicate conventional control assessments.
One of the key contributions of FAS 44 is its tailored approach to Islamic finance structures. It recognizes the nuances and distinct characteristics of Shari’ah-compliant financial transactions, offering principles that align with Islamic jurisprudence while maintaining global financial reporting standards.
The standard’s immediate effectiveness places an onus on Islamic financial institutions to promptly review their current accounting practices and ensure compliance. Institutions will need to reassess the structure and classification of their participatory arrangements and consolidated entities under the new standard.
With the release of FAS 44 in Arabic, AAOIFI continues to reinforce its position as a leading authority in Islamic finance regulation. The move reflects a commitment to improving financial reporting practices across member countries and providing clarity to regulators, auditors, and financial professionals.
AAOIFI’s ongoing standardization efforts are key to fostering greater consistency and trust in Islamic financial markets. As global interest in ethical and Islamic finance grows, unified standards such as FAS 44 play a foundational role in supporting the sustainable growth of the sector.